Arch Capital 2014 Q2 Net Income: $202.5M

August 3, 2014

Bermuda-based Arch Capital Group Ltd. reports that net income available to Arch common shareholders for the 2014 second quarter was $202.5 million, or $1.48 per share, compared to $171.5 million, or $1.26 per share, for the 2013 second quarter. The Company also reported after-tax operating income available to Arch common shareholders of $160.7 million, or $1.17 per share, for the 2014 second quarter, compared to after-tax operating income available to Arch common shareholders of $135.0 million, or $0.99 per share, for the 2013 second quarter.

The Company’s after-tax operating income available to Arch common shareholders represented an annualized return on average common equity of 11.2% for the 2014 second quarter, compared to 10.9% for the 2013 second quarter. The Company’s net income available to Arch common shareholders represented an annualized return on average common equity of 14.1% for the 2014 second quarter, compared to 13.8% for the 2013 second quarter. The Company’s book value per common share was $43.73 at June 30, 2014, a 5.3% increase from $41.52 per share at March 31, 2014 and an 18.8% increase from $36.80 per share at June 30, 2013.

After-tax operating income or loss available to Arch common shareholders, a non-GAAP measure, is defined as net income available to Arch common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See ‘Comments on Regulation G’ for a further discussion of after-tax operating income or loss available to Arch common shareholders. All earnings per share amounts discussed in this release are on a diluted basis.

In March 2014, the Company invested $100.0 million to acquire approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company [together with Watford Holdings Ltd., “Watford”]. Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford in accordance with GAAP. As such, 100% of the results of Watford are included in the Company’s consolidated financial statements. Watford, which is included in the ‘other’ segment, reported $51.8 million of net premiums written and a net loss attributable to common shareholders of $1.4 million [net income less dividends attributable to redeemable noncontrolling interests] for the 2014 second quarter. For additional details regarding Watford, please refer to the Company’s Financial Supplement dated June 30, 2014. All discussions of line items in this release exclude the ‘other’ segment amounts.

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